With a new year almost upon us, it is now time to think about your New Year’s resolutions for 2024. These resolutions should include financial resolutions that you can keep as well.

Setting the Stage for Financial Success in the New Year

A good starting point is to reflect on both your financial successes and those areas where you may have fallen short this year. It is important to set financial resolutions for the new year, but it is also important that those resolutions be realistic and achievable. Stretching is okay, but overreaching and falling short each year can lead to frustration that can discourage you from doing proper planning.

Creating a Realistic Budget

Budgeting plays a key role in achieving financial stability. Knowing how much money is coming in and going out, and where that money is going are critical elements in your overall financial planning efforts.

There are several steps to creating an effective budget, including:

• Identifying income sources
• Tracking expenses
• Setting savings and spending goals
• Tracking your progress against those goals

Calculating Your Net Worth

Your net worth is the total of your assets minus your liabilities. This includes your investments, your home and any other real estate, the value of any art and collectibles, the value of a business and any other assets you own. Subtracted from this number is the total of your liabilities, typically debts owed such as a mortgage, other loans, credit card debt or other types of debt.

Your net worth can represent net assets that you can convert to cash. Growing your net worth over time can help ensure financial security over time.

Managing Debt Wisely

Carrying too much debt can have an adverse impact on your financial well-being. Large debt payments can detract from your ability to save and invest towards your financial goals.

There are a number of strategies for reducing and managing debt, including the following:

• Debt consolidation strategies, which include consolidating your debt into one loan at a lower interest rate.
• Debt snowball vs. avalanche debt repayment methods: The snowball method entails paying off your smallest debt first, then the next smallest and so on. The avalanche method is the opposite, you focus on the largest debt first and then move down the ladder. The snowball method tends to be considered the preferable approach in most cases as it tends to accelerate the process a bit.
• Negotiating with creditors to lower your interest rate or even forgive some of the debt can pay off in some cases.
• Developing a debt reduction plan as a financial resolution may be your best plan. Especially if this translates to a permanent strategy to reduce your debt and then maintain it at a management level.

Building Emergency Savings

Having an emergency fund should be an integral part of your planning. As the name implies, an emergency fund is a sum that is there in case the unexpected happens. An adequate emergency fund can help soften the financial impact of unforeseen situations like a job loss, a prolonged illness, unexpected car or home repairs and a host of other situations.

How large your emergency fund should be will vary based on your unique situation. Most experts suggest having at least three to six months worth of your ongoing expenses such as housing, food and other basics in a liquid account such as a savings or money market account. You may feel you need more than this depending upon your needs.

Accumulating an emergency fund does not need to be hard. You might consider doing an automatic transfer to your designated emergency fund account each pay period, much like your 401(k) contributions for example. The effort to start and maintain an emergency fund is worth it, knowing your basic needs are covered provides peace of mind that can free you to concentrate on achieving your longer-term financial goals.

Reviewing and Adjusting Your Financial Resolutions

Establishing financial resolutions is not the end of the process, in fact it is only the beginning. It is critical to review your plan to achieve these resolutions periodically during the year. Things may not always go according to plan; periodic check-ins allow you to review your progress and to make adjustments as needed.

It is important to set goals and milestones towards these goals in order to be able to track your progress. If you find yourself falling short in any areas, you may need to make adjustments. This might involve the amount you are saving or perhaps your progress in reducing your debts. In these examples, you might need to reduce spending elsewhere to free up the money to get back on track.

Things do not always go according to plan with financial resolutions. It is important to stay motivated and to be accountable to yourself in terms of monitoring your progress and making adjustments as needed. While it can be frustrating to fall behind on achieving your financial goals, focusing on the benefits of the end goal can be a good motivator to make adjustments and get back on track.

Conclusion

It is important to review your financial situation at the end of each year and to set financial goals for the new year. It is also important to track your progress against these goals and to make adjustments as needed.

This is a good time to reach out to your Wedbush financial advisor for help in reviewing your financial situation and in formulating goals for 2024 and beyond. Happy New Year and best wishes for 2024!

 

Disclosure 

Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor. 

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